Barclays: Pricing Power Should Offset Auto Supply Shortages ‎

By Avi Salzman

A cloud has been hanging over the auto sector as supply shortages and high gasoline prices appear likely to weigh on earnings this year. But Barclays analyst Brian Johnson says that Ford (F) and General Motors (GM) are worth buying on the dip, as the companies should be able to grow market share and keep prices up through the summer, which is traditi0nally a period when they offer large incentives.

With gasoline prices nearing $4 a gallon, consumers are likely to favor smaller cars over trucks and SUV’s. But the impact should be less dramatic than in 2008, when consumers favored large automobiles over smaller ones by a much greater percentage than they do today, Johnson noted.

The March 11 earthquake and tsunami in Japan considerably disrupted the auto supply chain, which will hurt both U.S. and Japanese automakers. But the impact on Japanese companies will likely be significantly greater, Johnson says, opening up a chance for U.S. companies to take market share. Johnson sees Ford and GM both picking up 70 basis points of share this year, with the Japanese companies losing 230 basis points. Hyundai and the European luxury brands should also gain, he writes.

Domestic automakers should see particular opportunities in cars and smaller SUVs, where the Japanese companies have traditionally held an advantage.

“The market already appears to have more than discounted oil price and supply chain pressures. On our published 2012E EBITDA, GM and F continue to trade below historical multiples, while improved pricing could provide additional upside to estimates despite the mix shift away from trucks,” he writes.

Johnson also likes various auto suppliers, although companies that make parts for trucks could see pressure. His favorites include Dana Holding (DAN), Lear Corp. (LEA), Tenneco (TEN), and Johnson Controls (JCI).

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